More government theft won’t MAGA. Guest post by Robert Gore at Straight Line Logic

Disclaimer: Everything in this article could be invalidated tomorrow if President Trump changes his mind or his negotiating tactics, which he does, frequently. It could be revalidated the day after tomorrow if he again changes his mind or negotiating tactics.

Liberation Day has come and gone. If Trump’s War on Foreign Goods (WOFG) is genius, we’ll take idiocy. It’s a stitched-together concatenation based on meretricious metrics, a Son of Smoot-Hawley that will ensure Trump a place in the presidential pantheon right next to Herbert Hoover. Like Hoover, Trump has a business background; like Hoover he never shuts up, and like Hoover he will preside over a disastrous tariff regime.

Start with the metrics the Trump team used to calculate the tariffs for each country. How did they determine a trading partner’s tariff on U.S. exports to that country? They didn’t take the country’s actual tariff rate, then perhaps add in a guesstimate percentage for non-tariff trade barriers and go from there. Rather, they took the U.S. trade deficit with that country and divided it by that country’s exports to the U.S. Thus China, which levies an average 7.3 percent tariff on U.S. goods, and Europe, where the average tariff is 5.2 percent, have 67 and 39 percent tariffs on U.S. exports according to Trump. If they had no actual tariffs or trade barriers at all, they would still have close to those percentages. (Zero tariffs would probably lower their trade surpluses a bit.)

But wait, there’s more!

James Surowiecki @JamesSurowiecki – 0:22 UTC · Apr 3, 2025

Just figured out where these fake tariff rates come from. They didn’t actually calculate tariff rates + non-tariff barriers, as they say they did. Instead, for every country, they just took our trade deficit with that country and divided it by the country’s exports to us.

So we have a $17.9 billion trade deficit with Indonesia. Its exports to us are $28 billion. $17.9/$28 = 64%, which Trump claims is the tariff rate Indonesia charges us. What extraordinary nonsense this is. 
 … Even given that it’s Trump, I cannot believe they said “We’ll just divide the trade deficit by imports and tell people that’s the tariff rate.” And then they decided to set our tariffs by just cutting that totally made-up rate in half! This is so dumb and deceptive. … .. it’s actually worse than I thought: in calculating the tariff rate, Trump’s people only used the trade deficit in goods. So even though we run a trade surplus in services with the world, those exports don’t count as far as Trump is concerned.

As cited in Moon of Alabama, April 3, 2025

An economics equivalent of counting angels on pinheads is the question of who “pays” the tariff: the foreign manufacturer or the domestic consumer? The best, albeit imprecise answer—because the relative shares vary across goods—is both. The tariff is levied on the manufacturer, which will generally seek to recoup at least a portion of its payment by raising the price of the good. That means the consumer is paying at least part of the tariff if the consumer buys the imported good at the higher price. Consumers may end up paying a higher price even if they switch to a domestically produced good. The increase in price by the foreign competition gives the domestic producer room to raise its price.

We’ve run Thomas DiLorenzo’s paragraph before, but it bears repeating.

Protectionist tariffs are associated with a long history of economic and social calamities in America and the world.  Protectionist tariffs are a political tool of plunder and theft, and people don’t generally take kindly to being plundered and robbed.  They are the prototypical anti-populist government policy in that they benefit a relatively small group of already-affluent, politically connected corporations (and their unions) at the expense of the general public.  The politically connected line their pockets by forcing their customers to pay more for the exact same products.  To the extent that protectionist tariffs “protect” corporations from competition, they will produce shoddier and shoddier products to boot.  What protectionist tariffs protect consumers from is lower prices and better-quality products.

Thomas DiLorenzo, “Our History of Protectionist Tariff Train Wrecks,” Lew Rockwell, November 26, 2024

Tariffs that plunder and rob the American consumer produce economic stagnation, just like any other tax. The WOFG will “protect” consumers from lower prices. Tariffs, then, are a great way to promote stagflation or worse

But wait, there’s more! American manufacturers, the putative beneficiaries of tariffs, often import components for their end products. Some imported components will apparently be exempted from tariffs. However, domestic manufacturers will pay the higher, tariff-enhanced price for nonexempt components and try to maintain their profit margins by raising prices on their end products.

Trump is promising an industrial renaissance as foreign manufacturers of both components and finished goods relocate their factories in the U.S. to avoid the WOFG. That may happen in some instances, but put yourself in the shoes of a foreign corporate executive.

Yes, the U.S. market is important, but its share of the global market has been shrinking for decades. Opening a factory in the U.S. will take several years and hundreds of millions, perhaps billions, of dollars. Are you supposed to base such a commitment on demented designs that can change overnight from an audacious autocrat who may be out of office before your project is complete, given all the regulatory delays that now afflict American production? You might also want to see how much the WOFG affects the U.S. economy before you make a decision. Waiting out the Donald may well be the best option.

As for all those jobs this purported industrial renaissance will produce, keep in mind that factories around the world, including the U.S., are producing more and more with fewer and fewer workers. Robots and AI are doing what humans used to do. For those jobs that remain, companies are finding it difficult to find people who either have the necessary skill sets or can be trained. In the U.S., woke indoctrinees aren’t the technicians and engineers they need to run automated factories. Many of them are barely literate. Even if the tariffs were to work exactly as intended, there will be no jobs bonanza.

We’ll stick with our conclusion in “Trump Versus Reality, Part Two.”

Trump maintains that his tariffs will force businesses who want to sell into the U.S. market to hire and produce within the U.S. There will be companies, both domestic and foreign, who open new factories in the U.S., just as there has been since mechanized production first began prior to the Civil War. Trumpists will trumpet those openings as proof positive that their tariffs are working, but when the unseen costs they don’t trumpet are tallied, tariffs will be making America net poorer.

Straight Line Logic, “Trump Versus Reality, Part Two,” December 21, 2024

But wait, there’s more! What happens when U.S. consumers or producers buy imported goods? They receive goods in exchange for . . . pieces of paper or keystrokes on a computer! The U.S. gets something for a currency—the world’s reserve currency no less—the value of which its government is driving to its cost of production, or near zero (the value of a penny is already less than its cost of production).

Guess where much of that depreciating currency goes? Back into U.S. debt, especially U.S. government debt. So, the U.S. gets a twofer—real goods for fiat scrip, and fiat scrip recycled into fiat debt. The U.S. has ridden this gravy train (often called the “exorbitant privilege”) since 1971, when Nixon finished turning the dollar into fiat trash.

The cause of U.S. economic deterioration is not other nations “unfair” trade practices; it’s debt. The Hemingway lines from The Sun Also Rises are well known: “How did you go bankrupt? Gradually and then suddenly.” Another way of saying that is that debt first constricts, and then it strangles, the result of the inevitable math of increasing principle and compounding interest. Constriction has been obvious since the turn of the century as nominal trend growth declines and real incomes stagnate. Now we’re at strangulation as the national debt, approaching $37 trillion, has hit the exponential function inflection point and a comparatively gentle rise has given way to a steep upward slope.

Producing less than it consumes and putting the difference on the national credit card, the U.S. exports debt (its leading export) in exchange for foreign goods and services. DOGE is Trump’s recognition of the looming debt catastrophe, but even if DOGE cuts every cent of waste and corruption from the federal government’s spending, it’s going to come up way short. With debt, the past determines the future.

That upward slope only gets steeper as long as the U.S. produces less than it consumes, especially as an ever-increasing share of dwindling production is devoted to debt service. Trump’s tariffs are not the start of an economic turnaround; they are merely a sign of the government’s increasingly desperate rapacity. It wants every dime it can get.

Many of Trump’s fans are performing intellectual triple back-flips trying to explain how the government stealing more money from Americans will make America great again. Financial markets can’t subsist on such delusion. The tariffs will prick the debt bubble on which nominal equity market prices have floated for decades. (In terms of real money, gold, the Dow topped in 1999).

Short term, government bonds caught a panic bid as they always do when equity markets drop precipitously. Longer term, interest rates will rise as bond prices drop, reflecting the damage more government theft will do to the U.S.’s productive capacity and the government’s ability to service its unsupportable debt.

Ultimately, debt will contract, hugely, to put it in Trumpian terms, as illiquidity, insolvency, and bankruptcy ripple through the financial system and the economy. Debt contractions are inherently deflationary, particularly when debt is the medium of exchange and the economy is based on it. This one will go global.

Everything is for sale when margin calls hit the world’s interconnected and highly leveraged financial markets. Imploding debt may end the bull market in gold priced in nominal dollars, although in real terms gold will probably buy more goods and service than it does now as deflation takes hold. In other words, the price of gold will drop less in percentage terms than other prices.

The best that can be said of the tariffs is that they will hasten what was going to happen anyway. Trump wants to FA, he will FO. The WOFG will be his biggest mistake since Warp Speed, although both may be eclipsed by nuclear war with Iran. If he makes it to the end of his second term, nobody will be talking about a third, and his visage won’t be the fifth face carved into Mount Rushmore.